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How Canada became an offshore destination for 'snow washing'

Guardian Web |
Wednesday, 14 February 2018 06:40 (EST)

Canada is one the world’s most opaque jurisdictions when it comes to identifying the owners of private companies and trusts, according to anti-corruption campaigners who say that more rigorous checks are required to obtain a library card than to set up a company in the country.

While publicly traded firms in Canada are required to disclose major shareholders, private companies need only note their directors, allowing those who own, control or benefit from the firm to remain in the shadows.

Most provinces allow nominee directors and shareholders and do not require them to disclose that they are acting on behalf of another person. “Privately-held companies can easily be abused for tax evasion, for money laundering purposes and to stash the proceeds of crime,” said Johnson.

How Canada stacks up against other countries – including known tax havens – was suggested in a 2013 study by American researchers. After sending out thousands of queries about setting up anonymous shell companies, researchers ranked Canada among the easiest of 60 countries to set up an untraceable company, along with Kenya and a few US States.

This opacity – described in a recent Transparency International report as the “getaway car of financial crime” – has become the perfect vehicle for “snow washing”: the use of Canada’s positive image to tout the country as an offshore destination where suspect transactions can be legitimised.

In 2014, G20 members – including Canada – vowed to improve transparency around the ownership of legal entities.

“Is it a wealthy person who earned that money? Or is it the Hells Angels?” Johnson asked. “An Iranian or North Korean under US sanctions? We have no idea.”

Files from Mossack Fonseca, leaked in 2016 as part of the Panama Papers revealed another consequence, said Transparency International Canada’s James Cohen. “Canada is being sold through snow washing by foreign intermediaries, who are telling their clients that you can bring your illicit finances into Canada and they’ll be cleaned like the pure white snow.”

Canada’s strong rule of law means that corporations registered in the country are less likely to attract scrutiny from foreign governments, tax authorities or law enforcement officials. “That’s exactly what foreign intermediaries are selling – the clean image of Canada,” said Cohen.

“Canada is a new player in the world of offshore companies,” noted the website of one corporate service firm in Switzerland. “It is by far one of the best neutral jurisdictions, providing offshore benefits without any of the traditional offshore drawbacks.”

Cohen’s organisation is calling on Canada to require private companies to disclose ownership information and for the federal government to compile all of the information in a public registry.

In 2009 the Royal Canadian Mounted Police estimated that as much as C$15bn was being laundered each year in Canada, mostly through companies where ownership is unclear. “

In December, federal and provincial finance ministers in Canadatook tepid first steps towards addressing the issue, hashing out an agreement to establish measures that would force firms to keep up-to-date information on ownership that could be handed over to authorities if need be.

Canada’s lax penalties for financial crimes burst into public view in 2005, during the trial of a Toronto lawyer.

The court heard that Simon Rosenfeld – who was jailed for money laundering in 2009 – had bragged to an undercover officer that Canada was a “la la land” where white-collar crime goes unpunished.

He said he knew of five lawyers in Vancouver who were laundering as much as $200,000 a month through trust accounts, adding that it was “20 time safer” for a lawyer to launder money in Canada than the US.

Cohen contrasted this view with Canada’s efforts to be a leading voice in the global community. “From Canada’s international standing, the idea that we want to be doing better in the world also means we can’t be a financial pariah in the world,” he said.

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